Having reached adolescence by 2002, the online retail channel has since matured into an $80 billion phenomenon and seems destined in the next few years to edge closer to adulthood, with sales estimated to top $160 billion by 2009.

Creating Value
Retailing is a winner-take-all industry in which the 15 percent of retailers that are category leaders captured an impressive 68 percent of the shareholder value generated in 2003. Given that retail value is created by growth and ROIC, how can retailers use their online and other direct channels to create value? First, direct channels can help retailers achieve new growth by attracting new customers and entering new categories. Second, they can drive comp-store sales increases in existing stores through online promotions and loyalty programs that generate incremental store trips. Finally, an effective multichannel approach can lead to a higher return on marketing investment and reduced inventory levels.

Multichannel vs. Multiple Channels
As they continue to develop non-store channels (e.g., Internet, catalog), many retailers are finding themselves operating in multiple channels with little cross-channel integration. This not only leaves money on the table, it can also destroy value by simply shifting sales from retailers' stores to their direct channels.

We help retailers avoid this "multiple channel chasm" by clearly defining the role of the direct channel within their broader strategies and helping them put in place the marketing, operational, and organizational elements to deliver.

Execution is Everything
First, it is critical for retailers to deliver a consistent brand experience in each of their channels. To do this, we help clients coordinate key marketing activities across channels, establish customer champions within the organization, and develop performance metrics which reflect an enterprise-wide view of the customer.

Multichannel retailers face a unique set of operational challenges. Working with our Operations Practice, we help retailers improve the efficiency of their online fulfillment processes and streamline their end-to-end supply chain, including optimizing the flow of product across channels.

Finally, breaking down organizational silos to achieve a more customer-centric focus can be a significant challenge for many retailers. Armed with the expertise of our Organization Practice and our experience serving retail organizations, McKinsey is well-positioned to support our multichannel clients on that journey.